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Independent directors may get 10-year terms

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Joe C Mathew New Delhi
Last Updated : Jan 20 2013 | 11:53 PM IST

As firms grapple with the shortage of independent directors, the new Companies Bill is likely to give them relief on this front. The Ministry of Corporate Affairs (MCA) may consider a 10-year term for independent directors under the new Companies Bill, instead of a six-year limit proposed by it to a Parliamentary panel that reviewed an earlier version of the Bill.

The move is expected to allay the fears of the industry, which was expecting a greater shortage of independent directors once the six-year term became mandatory.

The changes, to be incorporated in the new version of the legislation (Companies Bill 2011), may also see independent directors allowed to return to the same positions again, albeit after a specified cooling period and the fulfilment of a prescribed set of conditions.

Currently, the ministry has not set any limit for the tenure of independent directors on a company board, though corporate governance guidelines of the Securities and Exchange Board of India give a voluntary instruction to listed companies to see that the terms of independent directors do not exceed nine years.

Corporate Affairs Minister Veerappa Moily said the industry concerns with regard to the tenure of independent directors would be addressed in the revised Bill he would present before the Cabinet soon.

The Bill is in a list of legislations to be tabled in the current session of Parliament.

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Moily, who declined to provide details of the changes, hinted his ministry would also propose a code of conduct for independent directors. The minister is also giving last-minute touches to the corporate social responsibility provisions in the Bill, which he said would be industry-friendly.

The Companies Bill, 2009 had proposed a six-year maximum tenure for independent directors on the board of a company.

It also suggested an individual not have more than two tenures as an independent director in a company and called for a three-year cooling period before the person could be inducted in the same company in any capacity.

As per the Directors Database website, an initiative of the Bombay Stock Exchange (BSE) and Prime Database, a total of 7,282 individuals occupy a total of 9,447 independent directorship positions on 2,671 BSE-listed companies. Of these individuals, 891 also occupy non-independent directorship positions on BSE-listed companies.

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First Published: Aug 04 2011 | 12:50 AM IST

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